mapping informal savings practices: peru final report

7/28/2019 Mapping Informal Savings Practices: Peru Final Report

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Mapping Informal Savings Practices

Peru Final Report – Jeff Macdonald

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Peru Final Report

Jeff Macdonald

August 2011

Microsavings and Payments Innovation Initiative





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Table of Contents

Table of Contents……………………………………………………………………………………………...........................2

General Overview of Peru………………………………………………………………………………………………………..3

Methodology……………………………………………………………………………………………………………………………5

Sicuani (location background and surveying strategy)………………………………..………………….5

Puno (location background and surveying strategy)……………………………………………..……….7

Infierno (location background and surveying strategy)…………………………………………..……..8

General Location Comments…………………………………………………………………………..……………..9

Composition of Sample (Representation and Bias)……………………………………………………….…..…..10

Survey Instrument and Process.……………………………………………………………………………………………..11

Comments on Updated Survey………………………………………………………………………....…………12

General Comments on Survey Instrument……………………………………………….…………………..13

Challenges to Data Collection…………………………………………………………….………………………..14

Findings and Trends from Surveying………………………………….…………………………………………………..14

Peru’s Financial Hierarchy……………………………………………………………………….…………………..15

Savings Attitudes…………………………………………………………………………………..……………………..20

Individual Savings Mechanisms…………………………………………………………..………………………..21

Group Savings Mechanisms……………………………………………………………………………….…………23

Common Patterns in Dealing with Expenses/Seasonality……………………………………….…….24

Family Dynamics……………………………………………………………………………….………………………….26

Cultural Elements…………………………………………………………………………….…………………………..27

Worrying and Comforting Signs……………………………………………………………………..………………...……29

Personal Comments…………………………………………………………………………………………………..…………..30





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General Overview of Peru

Though still quite poor, Peru is one of the world’s more promising developing countries. This

coastal Latin American nation, along with its neighbor Bolivia, has been a hotbed for

microfinance and other development projects in recent decades. Peru provided an excellentlocation for the Informal Savings Study for a variety of reasons.

Peruvians are a very proud and open breed. Many understand the large structural problems

facing their country, as well as the high level of poverty; yet they are optimistic that once the

government is reformed these hardships will be alleviated. This sentiment is particularly strong

given the recent electoral change to left-leaning populist candidate Ollanta Humala. Because

the country is highly saturated with NGO’s and MFI’s, most respondents are quite familiar with

various financial institutions and aid programs. Many poor Peruvians utilize these resources to

make their lives easier. There is no shame or negative stigma attached to using such financial

instruments or talking about them, which made my surveying much easier.

The Peruvian economy has been somewhat of a growth miracle in the last five years (excluding

2009), growing at about 8% annually. Of course, this figure is an absolute measure of growth,

and it is clear that the bottom millions have yet to see massive changes in their income or

lifestyle. Though social mobility is possible, it is confined to the densely populated urban areas

that offer extensive education, insurance, and banking options. The more remote rural and

mountainous regions, which compose a large portion of Peru’s economy, remain frozen in time

in many respects. They tend to use more primitive farming and business techniques, and most

citizens labor for basic shelter and alimentation. Nonetheless, MFI’s and NGO’s have madeextensive efforts to reach out to this final unbanked frontier, tailoring their products to the

diverse demands of these clients. Thanks in part to these recent efforts, the rate of poverty has

dropped to around 30% and the country boasts a high Human Development Index score of

.723.

A notable feature of the Peruvian economy is its general lack of a healthy formal sector,

whether public or private. Countless university-level graduates cannot find work and are forced

to try their hand in the ultra-competitive informal sector. This sector, which is heavily saturated

with business loans, relies heavily on contraband from other countries because there are few

factories and production centers in Peru. State jobs are highly coveted (mostly teaching

positions in public schools), because they include a steady salary, pension, and use of the state-

run Banco de la Nación. Nearly all of my respondents are from the poor informal sector, and

virtually none receive any type of aid from the government, nor do they pay taxes. This cross

section of people, though hard-working, seems to be trapped in difficult trades without the

business skills or financial knowledge to escape a stressful and laborious lifestyle.





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The strong dissatisfaction with the central government (all of the power is concentrated in the

coastal capital of Lima, of which 1/3 of the population lives) has recently come to a boil. The

tumultuous election process evidenced this, as well as large strikes across some of Peru’s

poorest regions. Poor campesinos and miners rose up against the government sale of land and

resources to transnational corporations. One of my research locations, Puno, was the epicenterof such rioting.

Because of the general government indifference towards poorer Peruvians, many MFI’s and

NGO’s have stepped in to take the place of the government and provide a type of welfare

system and safety net for the people. The central government places very few restrictions on

these organizations, and as such Peru is currently ranked the number one country for

microfinance. Nearly every town, big or small, is littered with banks. These institutions function

in a type of hierarchy, with small MFI’s at the bottom and large government banks at the top. I

will later detail the specific subsections that different groups of respondents used, but it

suffices to say that Peruvians have enormous access to financial institutions. This is due to a

recent microcredit revolution in the country, led by the ubiquitous Cajas Municipales. I will

describe the advantages as well as shortcomings of such financial saturation, and in particular

how it influences savings behavior.

Peru has three very distinct regions, each with its unique character and attributes. There is the

coastal region, epitomized by Lima and Ica, the Andes mountain region and high plane region,

featuring Cuzco and Puno, and finally the rich Amazonian jungle region, home to Iquitos and

Puerto Maldonado. Lifestyle varies greatly in each of these geographically and ethnically

distinct regions. I focused my research on the Andean and jungle areas, which tend to be Peru’spoorest and are generally ignored by the central government. As such, I encountered many

respondents of indigenous heritage. In Peru, there still exists a large amount of racism.

Generally, the darker and more indigenous looking you are, the less likely you will be able to

rise above a life of constant, 7-day-a-week toil. This is important to take into account and I have

made this explicit in the codes for Race.

Finally, on a more basic level, Peruvians are very family-oriented and nearly all are Catholic (at

least nominally). They enjoy large families and have strong support systems of friends and

family to depend on in case of emergencies. In my experience, there also appears to be a high

level of gender equality. There is not a wide sense of “machismo” for women. Also, Peruvians

tend to think in the short-term and seek more instant forms of gratification. As I have

mentioned before, they are also very hard workers and many are self-employed and work a

number of jobs just to “get by” and support their friends and relatives. Given these

circumstances, there is not a very large savings culture in this country, particularly when

compared with the burgeoning demand for loans.





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In this report I will detail my findings and connect them to context-specific explanations and

theories. Peru’s saturation of microfinance is rivaled by few other developing countries in the

world, so it is essential to look at the data and findings with this feature in mind.

MethodologyI surveyed in three distinct locations in Peru. Because I speak Spanish fluently, I did not need a

translator. For each location, however, I utilized contacts that served as unofficial guides

initially to help me get situated and identify particular locations for surveying. I will describe

each location and the unique strategies I used to survey in each. After, I will make some general

observations about the overall methodology I used and how this lead to certain biases in my

sample.

Sicuani - Location Background

Sicuani is a semi-urban provincial capital with a population of about 50,000 people. It functions

as a type of commercial center for a large agricultural region. Many people from the

surrounding campo (rural countryside) converge on the city for a variety of services, primarily

agricultural supplies and general goods. The city is fairly bustling with business every day of the

week (the vast majority of store-owners I spoke with work 7 days a week, a necessity to make

ends meet), and there are always informal colectivos and combis (multiperson taxi-cars and

vans) coming in and heading out for the campo. On Saturdays, there is a feria (large market) in

Sicuani, and people from a wide geographical region congregate in the large outdoor markets

to buy and sell their goods.

These markets are more or less models of perfect competition, with dozens of vendors all

selling the same product for similar prices. Large distributors, called “mayoristas” carry supplies

in bulk and small street vendors, or “minoristas”, sell the product on the streets directly to

consumers. Markets are filled with contraband from all over the world, typically smuggled in

from neighboring Bolivia. In this environment, business loans and informal personal loans are

ubiquitous. Many respondents described that a constant stream of credit, whether formal or

informal, was necessary to stay competitive.

The people of Sicuani are very accustomed to large seasonal swings, because of their proximityto the campo. During the time of surveying, it was the “cosheca” or harvest season so business

was slower. At the end of this season, in late July, farmers begin to flood the markets with their

crops. The raising, buying, and selling of livestock is also a very common practice in this region.

Sicuani is known as the “capital of solidarity” and this was evident throughout my surveying.

Andean culture tends to be very communal, and community members work together and share





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much of their financial resources. When there are emergencies, whether they are related to

business or personal life, friends and family are quick to come together and offer financial

support.

In this smallish town, there is large saturation of financial institutions including MFI’s, NGO’s,

and small private banks. These organizations enthusiastically offer various forms of micro-credit

to poor individuals, yet this push for micro-loans is not at all matched by an emphasis on

savings.

Sicuani - Surveying Strategy

IPA associate Adam Betty suggested this region to us, and put us in contact with the head of the

local branch of Arariwa, an MFI that IPA has worked with on projects in the past. Upon arriving

in Sicuani, I used contacts from this MFI to meet respondents as well as other financial

institutions. Therefore, my sample is biased in that towards the beginning I was largely findingrespondents that had some connection with MFI’s (because there was a level of trust when I

mentioned the name of various MFI’s that I had been working with in the town). I am very

indebted to Arariwa; they were very hospitable and truly helped Zachary and I get our research

off the ground in this first research location.

Because people were generally very busy, I would often set up times later in the day or week to

come visit them to conduct the survey. Often, I had to visit three times to fully complete the

survey, because even though Peruvians were many times willing to do the survey, they are

terrible with time and often get impatient or want to get back to their work (even if that

consists of sitting down in their market stall and doing nothing). This made surveying a bit

difficult, because despite a full day of scheduled interviews, inevitably a few respondents would

be inexplicably missing, late, or suddenly uninterested. In addition to meeting people through

MFI contacts, I also walked around striking up conversations with various business owners and

people on the street. These conversations didn’t always end in surveys, but they provided many

valuable qualitative insights. I embraced this “serendipitous encounter” approach more fully in

Puno, my second research location. In addition, I was able to sit in on a number of savings and

loan group meetings as well as loan appointments through my connections with various MFI’s.

From these, I was able to observe the behavior and attitude of poor Peruvians as they made

their financial transactions. To summarize these various meetings, it seemed as though many

microfinance clients felt somewhat uncomfortable or uneasy at these financial institutions.

Because they lack a high level of financial literary, they tend to put all of their trust in the

leaders of their group or their credit officers without giving much input. At nearly all the savings

and loan group meetings I attended (at both Arariwa and Pro Mujer), there was inevitably one

or two members of the group that were missing or could not make their full payments.





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Generally, taking out loans is very stressful for these people, but it is a necessity for their

businesses and in order to cover larger family-related costs such as funerals.

My sample is largely representative of small business owners and vendors. I completed 26

surveys in this location, and additionally gathered a large body of qualitative notes from the

various MFI clients that I spoke to and observed.

Puno - Location Background

Puno is a bustling urban hub located on the shore of Lake Titicaca with a population of 100,000

people packed into a small geographical area. This location attracts many tourists and is also a

center of commerce because its proximity to Bolivia (from which loads of contraband are

smuggled in). The area has been designated a “Special Economic Zone” by the central

government, and is one of Peru’s poorest. Many people in the surrounding countryside devote

their time to agriculture and raising livestock, while the city dwellers focus mainly on the buyingand selling of goods.

A few weeks before I ventured to this location, the entire city was at a standstill because rioting

campesinos and informal miners converged on the city to protest the government. As such, I

got an interesting perspective of the financial as well as emotional climate in this city after this

civil unrest. For many storekeepers, this affected them greatly because all stores were forced to

close down and additionally tourism screamed to a halt. In my surveying I observed how these

individuals coped with this significant local economic downturn, and how this affected their

cash flows and savings behavior.

Puno is filled to the brim with various financial institutions that compete for clients with

attractive interest rates and promotional deals. It has been the target of much research and

project-piloting in recent years; a thorough assessment of the financial environment can be

found here http://www.fsassessment.umd.edu/publications/financial-landscape-peru.html.

Puno - Surveying Strategy

Upon my arrival in Puno, I met with a few IPA staff members who were working with an MFI

called Pro Mujer on a program evaluation project. I met with the local surveyors that IPA hired

and they gave me useful tips for surveying (though they also made me envious of their slick

netbooks that they used to survey). Per their suggestion, I spent the majority of my time

surveying in large markets throughout the city, where people were likely to be open about their

finances. Market-dwellers in Puno have been targeted by many MFI’s and NGO’s to develop

products such as group-liability savings and loans groups that will better suit the needs of this

population.

http://www.fsassessment.umd.edu/publications/financial-landscape-peru.html








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I had an official IPA credential printed to wear around my neck as I surveyed in the city’s four

large markets, and this was very helpful. I simply wandered around the different locations

striking up conversations with small store-owners and soliciting surveys. Having established

various friendships using this technique, I branched out to their family and friends as well.

My sample from Puno is quite homogeneous, though it captures the essence of the commercial

hustle-bustle that is Puno. Life in Puno is fast-pasted a full of transactions. I completed 21

surveys in this location, many of them with women.

Infierno - Location Background

My third and final research location was a small village called the Native Community of Infierno

located deep in the Amazon jungle of eastern Peru. The small village has no running water or

electricity, and is located about an hour away from a moderate sized town called Puerto

Maldonado. Though native people have been living on the land for centuries, the formalcommunity was founded in 1985 and includes an organized board of elected officers and

bimonthly community meetings. The community has an “ecotourism” relationship with a

company called Rainforest Expeditions, and community members receive an annual check from

the tourism proceeds in the area. There is a large, popular river lodge up the river from the

community and many male community members staff this location. Infierno definitely fits the

description of “rural”.

The small community is very spread out and most community members support themselves by

agriculture. It is situated alongside a large river that the community uses as its main water

source, its chief form of transportation, and to irrigate crops. Outside of a government health

outpost and a small school building, there are no public or commercial buildings. Because there

were no lodgings or stores, I stayed with the very kind and very old Shaman in the community

free of charge.

This location was interesting not only because of its remote and exotic locale, but also because

of the community structure that I observed there. Membership is only automatic for natives

that have lived in the community for their whole lives. The majority of this recently formed

community, however, hails from the regions of Cuzco, Puno, and other Amazonian areas so

they must undergo a membership application process that consists of attending many meetingsand having residence for about 10 years.

The community of Infierno receives a large sum of money from Rainforest Expeditions each

year, and divides it up among the various community members (only one member from each

family receives these funds). Before the funds are distributed, however, a certain percentage is

taken out to serve as communal funds. These funds are held in separate accounts that are





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marked for education, health, and taking care of the elderly. In addition, there is a slush fund

that community members can withdraw loans from with relatively little interest.

Though this system sounds ideal for a small rural community, many residents complain that the

leaders mismanage the money and pocket much of it for themselves. I was privileged to sit in

on a group meeting (where all the community members attend), and many members gave

speeches about the need for serious reforms in the handling of the community’s finances. The

“junta directiva” (the executive board of the community that handled all the money) tried their

best to deflect the criticism and insure the members of Infierno that they could be trusted.

Many respondents I spoke with where not thrilled about the mandatory contribution to the

various communal savings funds.

Infierno - Surveying Strategy

Surveying in this remote region was a bit more difficult because I had to obtain formalauthorization from both the community’s president (who was nowhere to be found for many

days) as well as Rainforest Expeditions, the company that partners with the community. After

quite a process, and a mandatory donation to conduct the research, I was given the green light.

Each day, I ventured out to a number of small houses in the community to conduct surveys.

This was made difficult by sometimes torrential rain, and the fact that men tended to be out in

the fields all day (and there is no electricity at night). Despite these set becks, I had moderate

survey success with 10 surveys and was able to learn about the unique financial functioning of

the community.

General Location Comments

Each one of these locations featured a distinct financial environment and mindset. Nonetheless,

the savings practices and attitudes I recorded in each were not wildly different across the

different geographical locations. In general, Peruvians save very little, and in this report I will

offer various explanations for this general trend and comment on possible solutions.

Peru tends to be a very top-down country, in the sense that for this project I needed to obtain

authorization or referrals from the heads of organizations in order to pursue my research and

establish trust. Where possible, I used in-country IPA contacts and had them send out emails to

various people higher up in MFI’s in order to help me out. I followed up this initial contact with

many emails, phone calls, and visits to make this research a success. If you are not a part of

some trusted organization or referred by one, this research can be nearly impossible in Peru. I

am indebted to Miguel Paredes, Adam Betty, and Hannah Trachtman for all of their help and

suggestions.





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My sample did not consist of one of the coastal cities. However, the coastal region of Peru

tends to be wealthier, so I chose to focus my research in areas of more serious poverty and

social conflict.

I would have also liked to do a bit more rural surveying, but it was difficult in these months

because it was the “harvest” season and I ran into various logistical problems. I attempted to

survey in the rural regions of Cochapata (near Sicuani) and Platería (near Puno). Although I was

accompanied by IPA field workers, these locations did not work out.

I think it would interesting to do the savings survey across many different regions of Peru,

instead of trying to get about 30 in each place, to see an even wider variety of savings

mechanisms in the many diverse environments in this country. However, I do see the value in

staying in one place for a few weeks because it allows you to really gage the financial attitudes

of the region and offer a considerable qualitative complement to the raw data collected. For

this project, I believe the qualitative observations (such as field notes as well as this final report)are just as valuable, and perhaps more reliable, than the data.

Composition of Sample (Representation and Bias)

My sample is largely composed of self-employed respondents who run a small business, work in

the field raising crops, or have a stall in the market. Peru has a massive informal sector, because

there is a general absence of a healthy, thriving formal sector. These respondents generally do

not pay taxes, nor do they receive any substantial help from the government.

This segment of the population tends to work just to be able to support their family; theytypically do not have ambitious business plans or long term personal life goals that they are

saving up for. Within this sample, I was able to access both men and women, as well as a

variety of wealth levels. The respondents have almost all tended to be middle-aged, with a few

younger and older respondents in between. It was more difficult to access rural people in the

“campo” during this study because of reasons mentioned in the previous section.

As such, the majority of my respondents are those with access to various financial institutions. I

find this sample interesting because I was able to evaluate more closely the effects of recent

efforts from commercial banks, MFI’s and NGO’s to cater to low-income respondents and

mimic the advantages of the various informal mechanisms that they use. Through my

surveying, I’ve found an interesting blend of formal and informal finance mechanisms, as well

as countless opinions about the strengths and weaknesses of these different devices. Many

respondents admitted to using more informal savings mechanisms in the past, but commented

that now formal options are considerably more reliable and less stressful.





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About half of the respondents I surveyed were of indigenous heritage and the other half were

of mixed heritage (indigenous and European). Also, nearly every respondent in the sample

claimed to be Catholic, though most were Catholics “in name” who did not regularly attend

church or practice their religion in a significant way. Most respondents lived together with

either their parents, siblings, or other relatives –though their individual “households” (whichonly includes their dependents and those they share their finances with) within these living

arrangements were typically around 4-5 people.

Because I was not walking door to door soliciting surveys, my sample is definitely not

representative of any one region or country as a whole. I tended to meet respondents in large

common areas, at various financial institutions, or at their place of work on the streets or in the

markets. I generally chatted with potential respondents for about 10-15 minutes about their

financial lives before bringing up the survey. Though I faced very little rejection, this strategy

was perhaps not as efficient as “cutting to the chase” and spreading a wide net trying to survey

random people in random places. Because there was no monetary incentive involved, I had to

rely on good will and develop a small friendship with each respondent beforehand.

Given this survey strategy (without a designated guide leading me around and setting up

interviews with me), I was able to complete less surveys overall, but I am extremely confident

about the quality of the surveys I completed. I firmly established trust with each respondent

and helped them open up about the details of their financial lives (which should be evident in

my field notes). That said, it is important to note that there is inherently bias because only a

certain type of person is willing to sit down and discuss their savings and loans behavior for

multiple hours with an almost complete stranger. Additionally, given my surveying style, I wasnot able to tap into the following segments of the Peruvian population very extensively:

younger people, formal sector employees, rural farmers, and the ultra-poor.

Though these groups constitute important parts of the population, I feel that I have captured

the common savings practices in Peru at this point in time. I was surprised to have found very

few informal savings groups (such as ROSCA’s, ASCA’s) and informal savings options in general.

Survey Instrument and Process

I have submitted an extensive document commenting on my evaluation of the surveyinstrument. Here, I will comment on the newest format of the survey (which has been greatly

updated) as well as summarize my general comments about working with the survey.





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Comments on Updated Survey

The “prize” element of the new Time Preference section should be helpful conceptually, though

I still believe that fac_c_pref_7 will throw off a fair number of respondents. Instead of using this

question to test if they understand the hypothetical situation, I find it easier to ask them why they prefer the particular option they chose. This will not only allow the surveyor to gage their

comprehension of the question, but the respondents’ explanation is often illuminating (I almost

always asked for such an explanation and included my findings in the field notes).

Asking for household names might be considered awkward, but I suppose we are going for a

more “financial diaries” feel with more personal, qualitative stories. I believe this is a more

natural way of inquiring about the family setup, however, because in my experience people like

to talk about and describe their family, instead of being asked rather strange questions about

whether or not they would be mad if someone else hid money from them. Surveyors will have

to play with this section a bit in order to get the best, detailed information about a family

without coming off as demanding or overly inquisitive.

The new Economic Activities section offers a more intimate and exacting way of estimating

income, though this process might become very tedious with large families. It can also be

difficult to judge how much of income is shared. Perhaps a question can be added about the

specific nature of income-sharing that goes on within the household, because most households

seem to be in between sharing everything and sharing nothing.

The addition of question fa_a_0 gives helpful context, though surveyors will have to tweak it to

get the right kind of response. Perhaps something like, is savings important in your family , do

you have friends or relatives that save, in the case that they themselves express a rather

lackluster attitude towards savings (as I often encountered).

The “Access to lump sum” section is more geared toward obtaining a solid estimate now.

However, between the two questions (how many times during the year and how much in total

was spent) this requires considerable recall. Respondents can most easily tell us how much an

expense typically costs each time, be it weekly, monthly, annually, etc. Since we are focusing on

the respondents’ access to that particular sum of money, I believe that we should inquire how

much it costs each time, and then ask how many times a year it occurs.

I am uncertain that the new Household Expenditures section will not yield accurate estimates.

Many respondents are not aware of how much they spend in a particular month, because most

rely on very rough mental accounting and money is constantly being pushed and pulled through

the household. However, I suppose this is the best way to go about getting the most accurate

estimate we can, because we can add up the respondents’ various monthly expenditures.





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The edits of question sav_a_6 through sav_a_14_bis are a helpful improvement. The older

questions specified “money from savings” (and now it is just money in general). I had many

respondents telling me that their family and community members never asked for money,

which seems rather unfeasible, but perhaps that was because of the “savings” component of

the question.

I am a fan of the addition of “business supplies” to the description of in kind savings, because

from my experience many respondents truly view this as their chief form of savings. It seems

that they sometimes overestimate the liquidity and value of these assets, but many times the

business is the livelihood and the mechanism through which people save and loan. As I’ve

commented elsewhere, business and personal finances are practically one in the same. The

additional of the specific in kind savings blocks for self-employed businesspeople and farmers

will certainly shed light on this.

I am fond of the addition of loan_a_10-12 in the Loan Generalities section, because we canbegin to gage this so-called trade-off between loans and savings. With multiple loan payments

every month, saving money does not seem feasible to many people. While respondents will go

to extravagant lengths and make large sacrifices to insure that they make a loan payment on

time, they would not do these things to keep up with a vague monthly savings goal. This speaks

to the psychological component of borrowing versus saving, which will be vital in this research

going forward, particularly in Peru.

General Comments on Survey Instrument

Towards the beginning of my time in the field, I spent many tedious hours translating and

perfecting the survey instrument. With new versions coming in weekly, it was a very trying

process. After numerous versions, and a bit of trial and error, I believe that we have created a

survey that is enormously better than our very first one. It also takes time to adapt the survey

to the local context. For many questions, I had to develop very specific strategies and examples

to obtain the most accurate data. This was a big challenge for this internship, and ultimately a

rewarding one (as you can see I have analyzed every section and question of the survey).

I am aware that is project focuses on “savings”, but as I have expressed throughout my field

notes, Peru lacks a general savings culture and I believe that the loan culture is among thebiggest reasons for this lack of savings. In my experience, the amount of savings and the level of

commitment to savings are wildly depending on other, more urgent financial needs of

respondents. It is essential to understand these barriers. Therefore, in terms of the survey, we

must sometimes take the approach of not directly asking about savings, but trying to figure out

why other beliefs or financial needs are seen as more important. This is not captured in a





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simple “why don’t you save with x or y mechanism” question, there needs to be a bit more

probing as to why income is allocated to things other than savings.

Challenges to Data Collection

The biggest challenges to collecting data came from the length of the survey. Though perhaps

necessary, the length turned many respondents off to the idea altogether. Though the generic

section was nice and breezy, respondents sometimes got bogged down in the many savings and

loans blocks throughout the course of a 2 hour interview.

I also found this survey difficult to administer when dealing with respondents with very little

education and financial literacy. Because of its extensive estimation and recall sections, perhaps

it needs some “dumbing down” or an alternate version for the ultra-poor and ultra-rural

populations.

Though I commented on in before, perhaps the biggest barrier to easy data collection is the

unreliability of respondents in terms of sitting down for a complete survey (or sitting down at

all). Often times respondents are hesitant to give answers in the specific format that the survey

questions demand, and prefer to explain the situation in a more conversational style. Part of a

surveyor’s skillset is leading these conversations to include the desired data points w ithout

pestering the respondent too much.

Though I believe that the survey is certainly asking the right questions, and in many instances

also using the right strategies to get at the answers, there is inevitably a measure of

unreliability to many the figures that respondents give. Given the constraints of our one shotsurvey, this is the biggest challenge to accurate data collection. These challenges, and possible

solutions, are described perfectly in the Appendix of Portfolios of the Poor , in which they had

the resources to utilize a “financial diary” method to analyze specific data on cash flows as

opposed to a one-shot survey like the one that we are using. Perhaps we can incorporate some

of these strategies once the Informal Savings project is scaled-up, because it is essential that

the data reflect the true financial lives of the world’s poor and their ability to save.

Findings and Trends from Surveying

I will now discuss the details of the savings mechanisms that I did and surprisingly did not

observe. I will first describe some essential background factors about the financial lives of

Peruvians that greatly influence the savings environment.

First of all, it is important to note that Peru has an overwhelmingly cash economy. The vast

majority of transactions and payment methods are taken care of in notes and coins. Though

mobile banking and debit cards have had some promising results in the development literature





15

I’ve read, I did not see much presence of such financial tools in the segment of the population I

was surveying. Instead, I spoke to many people that kept small savings boxes at home, or

simply hid their money elsewhere to keep it safe. Because most workers do not receive checks

and do not have checking accounts, they are constantly passing around money and making trips

to and from the bank (or their home) to facilitate transactions.

Also, Peruvians are constantly sharing money with friends and family; they do not tend to be

stingy or obsessive about money. Money is a means to put food on the table and educate the

children more than anything, and very few families spent money on luxury or leisure-related

goods. With the little free time they have, most of it is spent playing or watching fútbol,

attending church, or spending time with their large families (and perhaps enjoying a cerveza

from a local bar or chicken from a pollería).

In this simple and humble culture, communities work and struggle together . Their financial

behavior is largely influenced by that of their peers, and people of a similar socioeconomicbackground tend to follow the same trends as others in their situation. As such, Peruvians

openly talk about money and financial struggles that they currently face, so the survey I

presented was nothing out of the ordinary for many of them.

Peru’s Financial Hierarchy

Before delving into the various trends and behaviors I observed, it is essential to understand

the basic structure of Peru’s financial system, which seems to have more of an effect on savings

and loans practices than any other factor I observed.

Banks are ubiquitous in this country, and credit tends to be widely available to nearly all that

seek it. It used to be the case that loans required collateral and a healthy credit history, but

since the recent micro-credit revolution has shown that poorer individuals are reliable clients,

small banks and MFI’s have sprung up rapidly and now they compete aggressively for this large

market of unbanked Peruvians.

There is a wide spectrum of Peruvian financial institutions, with small profit-seeking private

banks at the bottom and large government-run banks at the top. Clients with more capital and

collateral can climb up the ladder of these banks, while the poorest Peruvians, though still

offered financial access, face higher interest rates and more stringent requirements at the

bottom. I will describe which subsections of the population use which banks, and what this says

about them and their likely savings practices.

I begin with a large group of people that remains outside the entire system itself – those who

refuse to deal with financial institutions. Typically, these individuals lack a high level of

education and have a very pessimistic financial outlook. Additionally, they believe that banks





16

are out to scam them and take advantage of their financial ignorance. While this belief does

hold some truth (as we will see on the bottom-most rung of the financial ladder described in

the next paragraph), these unbanked individuals espouse a set of beliefs that are detrimental to

their financial future. They have no ability or desire to save because they believe it is for rich

individuals (like corrupt politicians and state employees and police officers), therefore theysimply labor away just to scrape by from their small self-employed work. They are generally

unwilling or unable to keep track of their personal finances, and therefore they do not wish to

approach banks. They also view themselves as unqualified. This poorly educated and ultra-poor

class of laboring citizens, of which I surveyed quite a few, remains resigned to their fate and is

not eager to look for help from NGO’s and banks.

At the bottom step of so-called “hierarchy” are banks like Banco Azteca that are notorious for

loaning to anyone and everyone. If a person seeking a loan has been rejected by all other

financial institutions, they have a good chance of being approved by Banco Azteca. Only the

most serious “morosos” (defaulters) who pop up on the central database called “Central de

Arriesgado” are outright rejected. Not unlike an informal moneylender, this bank offers short

terms loans with very high interested rates. The typical rate for a loan is 1.62% each week, or

6.48% monthly. Banco Azteca focuses on personal loans, not loans for businesses like many

other institutions. Their philosophy is that even the very poor should have access to loans, and

should not have to rely on risky and dangerous moneylenders for such rapid funds. They have a

default rate of approximately 20%, which is substantially higher than other institutions in the

area, but the figure is not so surprisingly considering their cliental and lending practices. The

representative that I spoke to acknowledged that the customers often used informal sources as

well, and that many would take out loans from moneylenders in order to pay their semi-formal

loans. Although credit officers try to discourage this behavior and teach clients about financial

responsibility through training programs, it is often to little effect. Interestingly, this bank offers

a saving account with 8% annual interest that can be opened with a mere 1 sol, or 30 US cents.

It is clear that this bank wishes to include those traditionally excluded by financial institutions.

Though this seems to be the ultimate goal of MFI’s and an overarching idea in IPA’s research,

there is a generally negative view of these lending practicing in the microfinance and

development communities. They do not screen their clients rigorously and typically only require

a DNI (national identification card) for a loan.

Small banks such as these, and a number of smaller MFI’s as well, aggressively advertise their

financial services to poor Peruvians. Respondents report that representatives from these banks

travel door to door in small neighborhoods passing out their pamphlets and urging people to

take out loans for their business, consumption, house repairs, etc. In addition, there are

countless promotional deals and minor perks that entice more and more people into this world

of debt. Many inexperienced people can be deceived by the literature and the loan officers





17

because they do not fully understand the terms of the loans or how the interest rates might be

subject to change. Once they take on a loan (or more), they must struggle to pay back the high

interest rates or else they will default and be locked out of the system.

After a few weeks of surveying, I could more or less predict what financial institutions an

individual used after a few minutes of chatting with them. The respondents that utilized these

lower-rung banks often had a rough credit history and jumped on the opportunity to take out a

loan without any real collateral. Some of these institutions demand a garante (sponsor), but

many do not. It is hard to say if this cross section of Peruvians truly benefits from the loans they

are receiving, because they often struggle greatly to pay them back, and in reality, they are not

qualified for such loans in the first place. They are often compelled to take out the loans

because they believe that it will help their business grow, or there is a grave emergency. This

group of respondents tends to lack a high level of financial knowledge and saves very little.

Additionally, they complement these bank transactions with many more informal behaviors. In

summary, these banks offer a gateway from truly informal finance into the world of formal

finance and they take considerable risks in doing so.

The next step above these institutions is a litany of MFI’s and NGO’s that have flooded Peru in

recent decades to help its poor citizens. These organizations focus on funding micro-businesses,

which are plentiful in Peru. Also included in this group are EDPYME’s, which also specialize in

funding small enterprises. Many small business owners, even those who have just a tiny stall in

the street market, take out loans from such institutions as Arariwa, Promujer, Edyficar, or

Solidaridad. Because these clients have small and irregular incomes, the process of evaluating

and approving a client is quite dynamic. Although it is illegal, many of the credit officers at thevarious financial institutions communicate with each other about specific clients. These credit

officers stress that in an environment with so many people seeking loan opportunities, and

such wide availability of credit, they need “good information” on their prospective clients. This

amounts to investigating their portfolio, doing background checks, and even making surprise

visits to their houses and places of work. With the more semi-formal options, people tend to

think they can stretch the truth and hide things from credit officers. This is perhaps because the

environment at these places can be more lax and very inclusive, whereas formal institutions can

be cold and uncomfortable for this type of client.

This section of the financial ladder works closely with their clients and is often very lenient with

its payment structure. In addition to offering loans and savings, these institutions attempt to

train their clients to be responsible and financially savvy. I saw firsthand the work that Arariwa

put into its clients, particularly with its savings and loans groups called “Banco Comunales”

(more about these later). Pro Mujer is a similar MFI that focuses on financing groups of women

and teaching them how to manage their complex financial lives. These MFI’s reach out to poor,





18

yet reliable Peruvians and try to offer them the advantages of informal financial mechanisms

within a much more reliable and organized organization.

Peruvians that utilize these institutions are often well-meaning and eager to boost themselves

out of poverty. The vast majority of loans issued from these institutions are for small

businesses. While these micro-loans are generally a helpful addition to a small burgeoning

business, respondents often inject this borrowed capital into stagnant or struggling business

and then find it stressful to keep up with payments or gain any significant profit. As such, there

is little room for any type of savings. Between daily familiar expenses and monthly interest

payments, it is difficult to build up any substantial amount of savings. However, many have

obligatory savings accounts as part of their membership in these MFI’s so they are forced to

save up small sums in order to take out loans. With the properly-designed loan products and

support systems, this group can definitely be brought to the next level of the financial ladder.

More than any other, this group shows promise and their lives will continually improve with

more access to better institutions and services.

The next big step is to the extremely popular system of Cajas Municipales. This chain began as a

humble MFI and now has been greatly bolstered by government support. It is impossible to

walk down the main drive of any Peruvian town without seeing a few of these slick red and

white buildings. The Cajas demand more requirements, and do a bit less hand-holding than

NGO’s and MFI’s. However, if the requirements are met, they dispense large amounts of cash

very quickly. By and far the preferred provider of small business loans, they offer a huge array

of different loans and savings accounts specially tailored to the needs of their clients. Whether

a client wants to start a business, save a business, open another branch, refinance, buy seedsfor the planting season, etc., the Cajas have a unique product designed to meet that need.

Typically, Peruvians with a bit of financial knowledge and a somewhat successful business will

take out loans from the Cajas. This system of banks requires collateral (but usually not the

client’s house) and has very standardized lending practices. They also grant attractive offers to

clients that are loyal and have a good track record of paying pack their loans on time.

Established members can open “parallel accounts” when they need a bit more money during a

loan period, for example. The respondents that used Cajas also tended to be more educated

and more disciplined savers. The Cajas offer a fixed term account that many respondents find

very desirable, because it gains a considerable amount of interest and keeps the money out of

temptation’s grasp. The Cajas, in some sense, are an important arrival point within the financial

system. Their cliental is still predominantly poor individuals, yet those with a desire to use

finance to improve their lives. These individuals tend to save up for specific goals such as

sending their children to college, buying a house, or expanding a business. In my experience,

this type of specif ication or “labeling” incentivizes saving much more than a broadly-defined





19

rainy day fund. It is clear that as you climb up the financial ladder, you get access to the better

tools and more friendly interest rates. The Cajas have been an absolute phenomenon in Peru,

because they offer a good service and promote the proper goals (even if they give credit a bit

too liberally). Though respondents could impressively recall the details of their outstanding

loans, very few could recall much information about their savings accounts (especially the fixedtermed accounts). It would be preferable for financial newcomers to enter the market with the

Cajas instead of the lower rungs of the ladder, where they are likely to be taken advantage of.

Finally, topping the hierarchy are the large, SBS-regulated banks that are utilized by the middle

and upper classes. This includes a number of national and international banks, most of which

have ATM’s, point of sales agents, and mobile services. These banks give out large, longer term

loans and thus charge lower interest rates. Most respondents considered these large, imposing

banks to be “out of their league” or largely untrustworthy. However, a few respondents had

spouses or family members that worked as public employees, which gave them have access to

Banco de la Nación, a large government bank. These respondents had the ability to take out

loans from this bank and the loan payments were simply subtracted from the monthly fixed

salary that the family member received. This takes away the stress of trying to scrape the

money together each month in time for the loan payment. Few Peruvians, however, enjoy the

services that this state-run bank offers.

Despite the recent revolution in microfinance and a booming banking sector (many MFI’s and

small commercial banks in Peru boast large and profitable portfolios), there is still a somewhat

widespread distrust of financial institutions. I learned that in past decades, there were a

number of poorly-managed and corrupt banks that targeted poorer individuals and thensuddenly and inexplicably closed. Many older respondents recalled losing the better part of

their savings in this type of event. Additionally, the judicial system was unable to punish these

sham banks or recover any of the lost deposits. Though a number of respondents pursued legal

action, they failed to see a dime of their money. However, it is clear that the government is now

regulating financial institutions much more rigorously, and the average Peruvian can feel very

safe with an account at a local Caja Municipal, for example. However, the anti-bank sentiment

is still quite strong with many people, so they will continue to hide their cash away at home

where they have constant control.

Though today’s banks may be more secure, many respondents still question their ultimate

motives. Respondents almost unanimously distrusted large government-related banks, calling

them “robbers that take advantage of people using high interest rates and unreasonable

requirements”. Peruvians tend to see interest as a form of robbery, and I met very few

respondents that were content with their current interest rate, whether on a savings account

(too low) or an outstanding loan (too high). Banks compete aggressively for poorer clients,





20

which has soured some Peruvians because they are selling complex financial products to a

section of the population that does not truly understand the consequences or purpose of these

tools and can fall easily into debt because of mismanagement. Large scale advertising

campaigns and promotional deals entice the poorest of the poor to these institutions, but as I

have mentioned, the banks are preoccupied with making profitable loans, and not so muchpaying out interest on their savings accounts. Given the level of financial access that a Peruvian

has, as I have laid out in this section, it is fairly easy to predict their savings patterns.

Savings Attitudes

I will start off by discussing the perception of savings and the general savings environment (or

lack thereof) in Peru. There is definite awareness of the need to save. The vast majority of

respondents viewed saving as very important, mostly because of the illnesses and emergencies

that inevitably come up in their lives. However, a much smaller percentage actually make this

ideal of savings a reality, because it is in fact very difficult to save (even for wealthy individuals

in the developed world). There are more immediate and basic needs. Food, clothing, and

shelter will not be forgone to keep up with savings goals. Simply put, most people do not save

because they believe that they cannot afford to do so. Many affirmed that real savings is for

rich people with employers that take care of them, and those who have access to low-interest

loans and high-interest savings accounts. However, even for those with some financial cushion

and potential to save, the effort to put aside money each month was lackluster.

So despite a general awareness that saving up money for future expenses (both planned and

unplanned) is important, there is little action or available options to encourage these behaviors.This contrast is immediately apparent in the Savings Perception section, as people would say

they are committed to savings, and would like to save, only to admit later that they do not

currently save, but have saved in the distant past. On that point, I believe that we should add

some questions to the survey that gage savings perception throughout a lifetime, and see if

respondents associate certain stages of life with savings and others with spending.

By and large, people with families and children do not believe that they have the capacity to

save, while single respondents or those will no dependents (such as older couples) seem to be

better savers. Additionally, business owners do not tend to separate their business and

personal finances, and do not set aside money for savings. All of their “savings” takes place in

their business through inventory spending. If they need a lump sum, they try to sell off their

merchandise. In addition, when asked about their “mental plan” for finances, it is very common

for these respondents to mention grand plans of expanding or improving their business (much

more than thinking about their children’s education or old age or even short to medium term

expenses). Many hold a vague dream-like plan for their business a few years down the road,





22

and are constantly drawing upon their savings, it doesn’t make sense to keep it locked away in

a bank account. In addition, they do not find the interest rates very attractive, usually

somewhere around 7-8% annually, especially when they compare these figures with the

interest that the banks earn on loans. As I mentioned before, a fairly high level of distrust for

financial institutions pervades the country, so people are skeptical to put their hard-earnedsavings in an entity “that can always fail and can always close” as one respondent put it.

While banks give special offers for loans, there are not similar promotions for savings. People

will not save enthusiastically with financial institutions unless the incentives are powerful and

the accounts work for them, or at least seem “worth it” based on an attractive interest rate.

The fixed-term savings accounts have certainly had some traction with people that are truly

committed to saving up money for particular goals, yet this type of account is not feasible for

many poor Peruvian families who need constant access to their savings in order to smooth out

the irregularity and unpredictability of their incomes.

For survey questions that deal with savings goals, many respondents display a combination of

wishful thinking and fallacious mental accounting. When asked to estimate savings goals for

one month and then six months, respondents routinely gave overinflated numbers that would

not be achievable with their current savings habits. I often feel that this type of monthly and

annually planning is a foreign concept to many respondents, as they often laugh at my inquiry

about a date so far in the uncertain future and then proceed to give me a figure that is very

improbable. The case is made stronger by responses to fa_a_16, which asks respondents to

describe their financial plan in an open-ended manner. Though respondents admitted to having

a plan in the previous question, they seemed to produce only a very vague representation of long term goals related to their home and their business when I inquired further. Though

Portfolios of the Poor suggests that the poor households of the world carefully track and

manage every dollar that enters their complex lives, my surveying in Peru seems to cast some

doubt on this hypothesis.

In terms of the mechanisms that respondents would ideally choose to save with, the big

winners were the Cajas and buying up land. Many people are hopeful to use the Cajas once

they have gained a bit more financial literacy and can understand the terms of loan agreements

and savings accounts. Through my surveying, I noticed that people know very little about the

details of their contracts with various financial institutions. They are uncertain of interest rates

and late fees and the like. The other coveted saving tool is “in kind” property savings. Countless

Peruvians affirmed to me that the very best way to save was to purchase cheap land in the

“campo”, or maybe even a small foreclosed house, and sit on it for a few months or years as the

property value goes up. Though this method is clearly attractive because it is both easy and

profitable, the amount of capital needed to initiate this type of investment would require an





23

extensive amount of savings beforehand (or a sizable loan, which would be nearly impossible to

repay for at least a few months or years).

Generally, I was surprised by the lack of savings by respondents with other poor individuals,

such as group savings or saving with friends or family members. There are many loans of this

informal type, but not much in the way of savings. Most respondents responded that “there is

no confidence” with other people handling their savings, though loans do not seem to be so

problematic. I see clear evidence of the “borrowing to save” phenomenon, because in response

to illness, accidents, or slow sales, the first instinct is to look for an interest-free family loan,

and if that is not a possibility, an MFI or bank loan. Very few respondents had the conception of

a rainy day savings fund that could be utilized during the rougher patches.

Group savings mechanisms

Though I have heard the term “pandero” floating around and a few respondents mentionedthat they had once been part of an informal ROSCA, I did not meet a single respondent that was

currently a member of such a group. Given the current alternatives offered by financial

institutions, this is not entirely surprising to me. If previous “pandero” members enjoyed the

commitment aspect of the group or the communal feeling, modern MFI savings groups can

offer these things minus many of the drawbacks of an informally run savings association.

One such group is Arariwa’s “Banco Comunal”, which functions as a type of hybrid ROSCA/ASCA

that is managed by the MFI to insure integrity and compliance. These groups have anywhere

from 10 to 20 members, usually small business owners or individuals with other sources of

somewhat steady income. Within a six month cycle, members have monthly reunions in which

they deposit their savings and can solicit a loan from the group fund. They have a mandatory

contribution of 5% of their income plus how much else they wish to contribute voluntarily. The

group is run by four elected positions (President, Treasurer, Secretary, Scribe) as well as the

Arariwa credit officer who oversees the proceedings, runs the books, and keeps the group

money in a bank account where it can accrue interest. The position-holders have a certain level

of autonomy in how they manage the group and ensure that the group pays punctually and in

full each month. The maximum loan group members can take out is 2000 soles/ 725 USD, and

they receive their total savings at the end of each cycle. The final meeting of each cycle is full of

joy and celebration, as everyone receives the money they have diligently saved together over

the past half-year. There are fines for late payments, as well as arriving late to group meetings,

yet these fines are primarily paid into the group fund so the whole group ends up benefiting.

Because I established a good connection with Arariwa, I was able to sit in on a number of group

meetings and observe the proceedings. At the close of every meeting, I would chat with

respondents about what type of things they were saving for and if they enjoyed saving with this





24

group. Pro Mujer, another MFI, offers a similar savings and loans group option largely for

women called “Asociaciones”. These groups follow a model of group-liability (though IPA is

currently running a study on group versus individual liability with Pro Mujer groups in Puno).

In my final research location, Infierno, I observed an entirely different form of group savings.

The community and all of its members functions as a single entity; electing leaders, voting on

important issues, and saving money for its important communal objectives. Every year the

community receives a large sum of money from tourism in the region and divides it up among

the officially registered community members. Before this happens, the executive board decides

how much money should be allotted to various community savings funds for education,

funerals, medical attention for elderly, etc., and deducts an equal portion from each member’s

annual check. This is obligatory savings, which many community members dislike, even if it will

one day benefit them or their families. I was able to sit in on a community meeting and during

the open forum section many community members complained that they would like to decide

what to do with their full check, not just the portion left over after putting money aside for

community savings. Though the community dislikes this policy, it is certainly for the better. I

spoke to many community members that benefitted from these community funds when one of

their loved ones fell sick or died. Though resented, perhaps mandatory savings is the right way

to go about promoting savings until people embrace the concept on their own terms.

Though all these group savings mechanisms certainly have their merits and bring people with

common goals together, groups are inevitably susceptible to a plethora of issues. Though

Peruvian culture is very communal and supportive, this solidarity functions better when it is not

forced. I spoke to a number of respondents that were previously in groups with Pro Mujer andArariwa and left because the group dynamics made the process stressful and cumbersome.

Though many people may be content to help out a friend in a time of need, the formal group

setting establishes an uncomfortable obligation that cannot be escaped and can bring about

considerable tension and frustration. As I was surveying in Puno, there was one Pro Mujer

group that was collapsing because one of the members had cancer and could not make her

payments. In response, none of the other women showed up to the mandatory payment

meeting because they did not wish to cover the costs for their poor friend.

Common Patterns in Dealing with Expenses/Seasonality

I encountered very few respondents who enjoyed a fixed and regular income. Many were

accustomed to large swings throughout the year and therefore had to carefully manage and

distribute their accumulated funds. The few people I met with the luxury of a dependable

income source were primarily state employees (who also enjoyed health benefits and a pension

after they retired). If a family member did have such a salary, it typically went towards constant





25

expenses such as monthly fees for school or business loan payments. Families took advantage

of this reliable stream of cash immediately, and saved little for future unplanned, non-constant

expenses.

This second type of expenses, such as accidents, deaths, or business failures, was typically

recouped by taking out loans, whether with a bank, a close friend, or a family member. By

turning to friends and family for help, reciprocal patterns are usually set in motion. Most people

do not worry too much about their lack of savings because they know they will be able to get

funds from someone close to them, or a bank with which they already have a line of credit. It

does not occur to them nor bother them that this method of mitigating shocks is more

expensive and altogether less reliable.

As I mentioned before, Peruvians are not particularly tight-fisted with their money. Funerals are

one good example. When a parent or sibling dies, all the surviving family members contribute

to a “bolso” (communal purse) to cover the expenses for the funeral. Though this appears to bethe most equitable way to go about things, the contribution of funds typically varies greatly,

and some family members share more of the burden than others. It is an informal mechanism

without a strong social obligation attached to it (such as the burial societies in Africa).

Most respondents claimed to have used their loan money for its designated purpose (typically

business expenses), though I cannot be sure of the accuracy of these claims, particularly

because virtually all respondents receive their loan money all at one time, instead of in periodic

installments. I have a hard time imagining that they carefully meter out the money they need

for each business expense.

Interestingly, respondents consistently claimed that they paid for education expenses with their

income alone, never using their loans or savings. This expense was fairly universal and constant

with my respondents. I find this interesting because my research partner Zachary, who was

researching informal moneylending, informed me that informal moneylenders in Peru see huge

increases in traffic during school matriculation season because people approach moneylenders

for loans. He also commented that a large cliental of such moneylenders were clients of MFI’s

that were struggling to pay off their microfinance loans. Strangely, I did not encounter these

types of informal loans (for education and for paying off MFI loans) from the demand side. I had

no respondents that admitted to taking out these types of loans with a moneylender. Perhapsthere is a certain shame associated with admitting that extra help is needed with these

particular expenses, because respondents were very open about informal loans for other

important expenses such as medical bills, house repairs, and even gambling debts.

It is not uncommon for respondents to hold loans from more than one financial institution, or

have multiple loans at one institution. The same is true, to a lesser extent, for savings accounts.





26

There is the desire to diversify and hunt around for the most favorable interest rates. For

poorer respondents, qualifying for loans can be a bit of a game with the various requirements,

so this process is typical. Sadly, many times they will take out smaller loans to pay big loan

payments and they become trapped in a cycle of debt that they cannot escape from.

Respondents confirm that many small private banks and MFI’s do not think twice about issuinga loan to someone with 2 or 3 concurrent business loans. This is yet another sign that credit is

being haphazardly issued, which ends up hurting poor individuals that believe they can pursue

the “Peruvian dream” with a small bit of business sense and loans galore (see Cultural Elements

section).

Family Dynamics

The family unit is important in Peru, and most of my respondents were members of sizable

families. Instead of a simple nuclear family, most Peruvian households are composed of

multiple adult siblings living under the same roof with their older parents as well. Therefore,

there is often a dizzying array of different inflows and outflows from a single household of three

generations, yet each family member works together to support the household as a whole.

In general, I did not detect a high level of “machismo” that is often attributed to this part of the

world. Rather, I sensed a high level of gender equality in most regions. Most respondents

claimed to make financial decisions together with their counterpart, and women work just as

frequently as men (albeit, in different jobs). For example, markets are almost entirely

composed of women, and as such MFI’s have catered their services to this section of the

informal sector. Women are much more likely to be involved in savings groups or work withNGO’s and MFI’s, which allows them to keep their finances distinct and separate from their

husbands if needed.

More commonly, however, I observed husband and wife working in tandem for the same

business, dividing time and responsibilities between the two of them. Their decisions bear

equal weight; it is not to say that the “head of the household” is the male who must control the

finances and make all the decisions. Typically, the wife will maintain the store, shop, or stall,

and the husband will go off to purchase and collect merchandise from the distribution centers

of Peru, or will work in other jobs to bring in additional income. It is not uncommon for a

Peruvian man to have a small business, raise crops on a piece of land for a few months a year,

and buy and sell livestock on the side. All these sources of income are funneled into the

household to provide for the children and other relatives in need (most time siblings or aging

parents).

I did note, however, that in the very rural areas the gender roles were much more “traditional”;

where the mother stayed at home cooking and tending to the children while the father slaved





27

away with the crops and made all of the decisions. This was a stark contrast to what I saw

nearly everywhere else, where raising children and dealing with finances was very much a team

effort involving input from all sides.

In terms of surveying, I feel that women were perhaps more honest about their financial

situations. They tended to admit that they regretted “emotional” spending on their children

because they could not resist the temptation. Not surprisingly, they valued saving for the sake

of children more than any other reason. They also tended to be more pessimistic (or perhaps

realistic) about their financial situations and some would even shed tears as they spoke of hard

financial times.

Males, on the other hand, tended to have a bit more pride about their financial situation. They

almost never admitted to any kind of regrettable temptation spending, and claimed to be

working laboriously in multiple jobs to support their families. Generally, they seemed to have a

more optimistic financial outlook, claiming that things would certainly get better in the comingyears because of some strategic business schemes that they had in place. These gender

differences were very visible.

Cultural Elements

There is a palpable Peruvian attitude that was present in nearly all of my interactions in this

country. Peruvians are intensely proud of their country, and they enjoy the influx of tourists

that come to see Peru’s many mystic sights. Being white and about a foot taller than everyone

else, I had a certain “novelty” factor as I ventured into some of the deeper, less tourist-ridden

regions of Peru to conduct the research. Because I am fluent in Spanish, love soccer, and deeply

appreciate their culture, the Peruvian people took very kindly to me.

Peruvians are convinced, perhaps with good reason, that the government is corrupt and

essentially offers them nothing. In general, I noticed a glaring lack of remittances of any kind,

whether from the government, family members, or NGO’s. These poorer people are delighted

that at least MFI’s and small banks will invest in them. However, there were numerous riots

taking place across Peru’s poorest regions while I was conducting this research, and numerous

respondents warned me that the tides would change and the central government would be

forced to pay attention to this oft-neglected portion of the population.

Peruvians view large banks, and to some extent smaller banks as well, as essentially corrupt and

untrustworthy like the government. The principle reason they cite for why such banks are

crooked is that they take people’s houses away if they cannot pay their loan. They complain of

gaping structural inequalities within the country, in which a small class of elites holds power





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over politics, banks, and higher-level education. It is difficult to tell how much of this is true,

and how much is a psychological reaction to “the man”, so to speak.

From my surveying, I learned that Peruvians have an extremely lax sense of time, and they

often are not very responsible. They have a generally relaxed life style that does not seem to

mesh well with the demanding schedule and rules of the financial world. Also, there is a strong

preference for the present and short term gratification.

The majority of my respondents had some component of indigenous heritage, which is very

common in the non-coastal regions of Peru. These people, who descended from the age-old

Incas, are known for chewing cocoa leaves and toiling away in the harsh weather conditions of

the Andes Mountains. They tend to be quite reserved and taciturn at first, and most speak

Spanish in addition to their native Quechua. There still exists a considerable amount of racism

against individuals with an indigenous appearance, which is visibly short and dark. The greater

part of the population is mestizo (mixed-heritage), and a much smaller portion is Criollo (purelyEuropean-descendants). Strangely, despite this very recognizable division and classification of

race, respondents had trouble answering the race/ethnicity question. I often had to inquire

extensively about their origins and sometimes I could not get a clear answer.

Regional differences are very pronounced as well. The three main regions are the coast, and

mountains, and the jungle. I did not spend much time on the more populated and wealthy

coast, but focused my efforts in the poorer Andean regions that are often neglected by the

central government. The coast is known to be more open and relaxed, so perhaps there is a

different set of informal savings practices there that revolve more around working with other

people in groups.

Just as there is a quintessential “American Dream” that generations of Americans have strived

to achieve, there seems to be a “Peruvian Dream” that many have expressed, and this comes in

the form of starting one’s own business, or expanding the one that’s already there. There

seems to be the illusion that this self-employment is profitable, when in reality it is very

competitive, requires arduous work 7 days a week, loans, and a good amount of stress.

However, this route is the most attractive one many Peruvians can take, given their level of

education and the financial tools available to them. Many hold the belief that with a little bit of

business knowledge and experience, they can jump ahead of the competition curve. Business-owners have an extremely large preference for the present, assuring me that they can quickly

turn a small amount of money into a large profit with various investments in their business.

Ultimately, I find this fixation on starting businesses to be a bit futile because there are very

slim profit margins and with all the loans, people incur a high level of debt. However, it seems

to be more of a necessity in the Peruvian economy, and less of a genuine option.





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Many poor Peruvians do not have the conception of retiring one day. They believe that they will

be forever working and paying things off. Even into old age, they cannot simply “retire” because

if any expense comes up, they won’t have the accumulated savings to deal with it. Many times,

their children are no better suited to help them out with these expenses than they themselves

are. Conversely, many older respondents report sending money to their children andgrandchildren to help them out. Even when a couple receives a pension check, it is usually not

sufficient and they must continue working to supporting themselves.

Worrying and Comforting Signs

To summarize, I will mention the most salient observations and take-aways from my surveying

– both positive and negative. Going forward with this research, it will be interesting to see the

progression of these general trends.

In general, there seems to be a clear over availability of credit to clients that are unable to keepup with the loan payments. Though access to credit is clearly a positive thing, too much of a

good thing quickly becomes a bad thing. Additionally, it is worrying that many respondents

have multiple overlapping loans and are not entirely sure of the details of each and have

trouble keeping track of them.

As I mentioned before, the “Peruvian Dream” of starting one’s own business is a sentiment that

pervades the poorer classes as a way out, yet there needs to be better employment

opportunities because this enterprise is risky and often times uncompetitive.

The rural area, though fairly well organized and with impressive access to their own uniquefinancial options, still suffered from corrupt leadership and very traditional gender roles that

suppressed women.

Finally, one of the most worrying signs is the banks’ lack of enthusiasm for micro-savings. There

needs to be a big push, because many banks told me that savings accounts are not profitable

like loans. It appears that micro-savings might be the “next big thing” in development, so

hopefully it can take hold of Peru just as micro-loans have and a healthy savings environment

can be developed with various options and a high rate of uptake.

On the positive side of things, I was impressed by Peruvians’ appreciation for the importance of

savings, even if it is difficult to execute in reality. Most people I talked to were quite optimistic

about their financial future and had mapped out some kind of long term plan for themselves

that involved an extensive amount of savings to achieve. Also, many individuals that were

outside of the financial system were eager to get involved with the Cajas and utilize financial

tools to make their lives better. The Caja phenomenon in generally is a great development that





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is more and more bringing poorer Peruvians to a more comfortable financial situation with

access to the funds they need.

There is a very strong commitment on the part of the respondents I spoke with to educate

children until the university level so they will be well prepared to enter the workforce and can

one day help out their parents with their knowledge.

It was inspiring to see people rise up from the poorest regions of Peru and protest government

neglect and mistreatment of resources. In a parallel situation, it was inspiring to see community

members in Infierno stand up to their executive committee and demand more financial

transparency, accountability, and expediency in executing initiatives in the community.

Overall, I detected a strong sense of gender equality in most families that I came across, which I

believe improves the overall financial health of the entire family as well (because the women

tend to make sure that income is spent to sufficiently cover the needs of the children, while this

is typically less of a priority for men).

MFI’s and NGO’s, which are everywhere in Peru, understand the fundamental problems facing

Peru’s poorer citizens and have already designed services and groups to help them. Many of

these innovations mimic the advantages of informal savings and loan devices that poorer

Peruvians have traditionally used.

I see this time as a transitional phase in the Peruvian economy, in which more and more people

are gravitating towards more formal practices to manage their finances. Informal loans and

savings were more popular in past decades when there were much fewer “formal” options.Many respondents claim that they had some type of informal finance in the past, but that these

arrangements turned out badly. Now, they either use more formal and reliable options, or

express the desire to do so in the near future. Things appear to be moving in the right direction.

However, it is essential that the numerous financial institutions of Peru act responsibly and

design the proper products to best serve the needs of this growing body of clients. It needs to

be easier to climb the “financial ladder” that I described earlier, or else these people will be

trapped with loans they cannot afford and will fail to save in any significant way.

Personal Comments

This was my first time doing anything of this caliber. Though a bit daunting at first, I quickly

adapted to Peru and gained the large skillset that this project requires. More than anything,

what’s needed is people skills. In every new location, I tried different angles, made as many

contacts as I could, and convinced poor, suspicious Peruvians to sit down and talk to me for 2

hours about their most private financial details. Though I struggled at times, it was a learning





process and I can’t describe all the things I’ve taken away from this project. The more

respondents I talked to, the more I came to embrace the people, the culture, and the financial

predicament that so many in the world find themselves in. More than anything, I enjoyed

chatting in an informal, conversation style with respondents and letting me open up to me. I

often asked many questions not included in the rather dry survey just to get more context andbetter understand what they were dealing with. Many times, the survey felt like a secondary

element, a necessity for data entry but not the core of the project for me. I was trying to

understand, in broad strokes, how Peruvians managed their finances and why so few saved.

The structure of the savings mechanisms themselves was not too difficult to understand. So

instead I focused my efforts on investigating various other phenomena, which I have detailed

throughout this report.

I enjoyed the freedom afforded to me on this project. It was liberating being able to set my own

schedule, create my itinerary, and ultimately help shape the survey and project as a whole.

Though the numerous survey changes and translation work towards the beginning was very

tedious, this is simply part of launching and piloting a new survey. I am confident that we now

have a much better survey, but it will still take surveyors a bit of practice and trial and error to

get used to. It would be impossible to mention here all of the tips and tricks that would be

helpful for surveying in Peru that I learned over the months. However, I think I have described

very thoroughly throughout the report some of the very Peru-specific strategies that I used.

Though I was focusing on savings, I think it is clear that loans somewhat hijacked my project

because they seem to me to be intertwined. As I have stressed throughout the report, I believe

it is important to look at the whole person, the environment, and all other financial informationwhen analyzing something like savings. I find Peru to be an interesting location because of the

extensive financial resources they have. It is not so much a matter of how they save, but why or

why not. I hope that in the coming years the numerous financial institutions in this country will

incorporate an influx of micro-savings products, merging them into the already very popular

model of micro-loaning.

I am incredibly thankful to IPA for giving me this unforgettable experience in Peru. I cannot

thank Henriette Hanicotte and Bill Gallery enough, who were very helpful and patient with my

sometimes poor communication habits. Hopefully I will speak with future generations of

Informal Savings Study interns and be able impart the small body of knowledge I have gained

this summer!

mapping informal savings practices: peru final report

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